On July 1, 2023, Bonita's Greenhouse purchased a new delivery truck for $66,000. She paid $20,000 cash and signed a promissory note for the remainder. Bonita estimates that the delivery truck will have a five-year useful life, or 200,000 kilometres and a residu value of $6,000. Bonita's Greenhouse has a December 31 year end. Bonita drove the truck 16,000 km in 2023; 45,000 km in 2024; 47,000 in 2025; 44,000 in 2026, and 49,000 in 2027.
On July 1, 2023, Bonita's Greenhouse purchased a new delivery truck for $66,000. She paid $20,000 cash and signed a promissory note for the remainder. Bonita estimates that the delivery truck will have a five-year useful life, or 200,000 kilometres and a residu value of $6,000. Bonita's Greenhouse has a December 31 year end. Bonita drove the truck 16,000 km in 2023; 45,000 km in 2024; 47,000 in 2025; 44,000 in 2026, and 49,000 in 2027.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
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On July 1, 2023, Bonita's Greenhouse purchased a new delivery truck for $66,000. She paid $20,000 cash and signed a promissory
note for the remainder. Bonita estimates that the delivery truck will have a five-year useful life, or 200,000 kilometres and a residua
value of $6,000. Bonita's Greenhouse has a December 31 year end. Bonita drove the truck 16,000 km in 2023; 45,000 km in 2024;
47,000 in 2025; 44,000 in 2026, and 49,000 in 2027.
Prepare a depreciation schedule for the life of the asset under each of the following methods:
1. straight-line method
2.
double diminishing-balance, and
3. units-of-production method
C
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